Thousands of non-paying members on the books, accounting errors and omissions and "boxes and boxes" of expired studio residuals checks — for the first time, THR unveils the union's lack of financial controls, which took over a year to rectify.

Before AFTRA merged with SAG, thousands of non-paying members clogged the union’s books and "boxes and boxes” of stale residuals checks had to be returned to the studios that wrote them, according to confidential audit and due-diligence reports detailing deficient financial controls.

In fact, the initial audits were conducted before the merger, with its authors highlighting these problems and many more, multiple sources told The Hollywood Reporter. AFTRA’s leadership failed to act on most of the auditor’s recommendations.

Now, with former AFTRA president Roberta Reardonrunning for executive vp, the second-highest office in the now-merged SAG-AFTRA, the never-before-reported audits may make waves at the union’s Sept. 26-29 convention.

Also highlighting the issue is a proposal by 17 locals that individual locals be permitted to set up their own bank accounts, as first reported by THR. That too faces a vote at the convention and, if passed, would mark a return to an AFTRA practice that resulted in a number of criticisms by auditors.

The audits found fault with deficiencies related to bank accounts, accounting systems, IT practices, employee records, membership files, residuals, and more. Multiple sources told THR that they did not suspect diversion of funds by any AFTRA staff or officers, and that the audit reports found no evidence of fraud or illegal acts. Rather, the overriding issue, according to sources, is that AFTRA’s lack of controls unnecessarily risked such activity, as well as making it difficult to get a true picture of the union’s finances.

“These matters have been resolved and do not reflect our current operations,” said a SAG-AFTRA spokesperson. “It is extremely disappointing that certain individuals have chosen to publicly discuss information on matters reviewed in our national board room. We have no further comment.”

Said Reardon: “I’m not going to comment on internal national board business. I never have; it’s not my style. (And) I’m not going to comment on unnamed sources.”

Reardon added: “I’m very proud of my leadership of the union. That’s what I care about.” Reardon was SAG-AFTRA co-president from merger until mid-August 2013 but now holds no office other than national board member.

Former AFTRA national executive director Kim Roberts Hedgpeth declined to comment. After the March 30, 2012, merger, Hedgpeth was briefly co-national executive director (with legacy SAG’s David White). She departed in April 2012 and was paid $851,164 in severance and other payments after her departure.

Former AFTRA secretary-treasurer (and former SAG-AFTRA co-secretary/treasurer) Matt Kimbrough said: “SAG-AFTRA looked at AFTRA’s practices. There were concerns and they were addressed. All money was accounted for, and there was no malfeasance. That was (the merged union’s) year’s work – to clean this up and move forward.”

SAG-AFTRA secretary/treasurer Amy Aquino did not respond to requests for comment.

A number of the issues cited by the auditors took place against a backdrop of local power, a problem for the national office that Hedgpeth acknowledged, according to a source. That power flowed from various sources: the union’s multiple locals set employee severance policies (leading to payments that one source called “extraordinary”), maintained independent bank accounts, collected dues money, processed residuals, entered data into accounting systems without review from national executives, set employee vacation day policies and more, without significant oversight from AFTRA’s national office, which moved from New York to Los Angeles in 2007. Perhaps most fundamentally, the locals received “block grants” of funds from the national office and then spent and accounted for the money as they saw fit.

The locals’ power led two sources to assert that although Hedgpeth projected the public impression that she was in control of the union, in actuality she struggled to maintain authority over the autonomous locals. SAG, in contrast, was structured as branches and divisions with little financial and personnel autonomy. The merged union is structured as locals, but whose powers are limited more along the lines of the SAG model.

Among the most dramatic issues discovered by SAG-AFTRA post-merger is that AFTRA overstated its number of active members by about 11,000, or approximately 15 percent of its true active membership. Several sources confirmed that the overstatement resulted from an AFTRA policy of not taking members off the active rolls, or automatically reinstating them, even if they hadn’t paid their dues for multiple years.

Since SAG-AFTRA minimum dues are $198 per year, the membership gap resulted in a budget gap of at least $2.1 million per year – money that the merged union had counted on in making its budget forecasts.

The union’s total budget deficit post-merger was about $10 million, according to sources. One source told THR that the remainder of the gap resulted from one-time merger-related costs including the union’s voluntary severance program, a $1.5 million cost incurred in closing 10 local offices, and fewer new acting jobs (resulting in diminished dues payments).

But the largest portion of the budget shortfall resulted from the fact that far more applicants rushed to join AFTRA in the months prior to merger than had been anticipated, because of the lower initiation fee (as compared with the planned fee for SAG-AFTRA) and the fact that AFTRA, unlike SAG-AFTRA, was an “open” union that admitted all applicants regardless of experience.

The source said that SAG-AFTRA had budgeted for about 375 new joins per month, but was actually seeing numbers as low as about 85 per month for a number of months after merger. At $3,000 per member – the initiation fee in the largest production locations, such as Los Angeles and New York – that translates to a shortfall of up to $870,000 per month. Other sources differed as to the figures, but one said the overall budget gap attributed to low new joins was about $6 million.

By pilot season, said the first source, the number of new joins had increased to about 300 per month, which was the revised budgeted figure.